Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
By Linda Koco
Annuity advisors, distributors and sales desks have stepped up their use of income annuity searches.
According to Cannex USA, these professionals made twice as many hits to the Cannex Financial Exchanges database in first quarter 2014 as they did in first quarter 2013.
The database tracks the number and types of “surveys” (or hits) that annuity professionals run when they consider making annuity recommendations to clients. The annuities researched include both single premium immediate annuities (SPIAs) and deferred income annuities (DIAs).
In first quarter, Cannex recorded nearly 240,000 hits to its database compared with nearly 118,000 one year ago and nearly 123,000 two years ago, according to reports from the firm. The company is the U.S. affiliate of CANNEX, a single premium immediate annuity data resource in Toronto, Canada.
The increase in hits equates to 103 percent more annuity surveys run this quarter than a year ago, and 95 percent more surveys when comparing the first quarter 2014 total with the total in first quarter 2012.
The 2014 number represents more than half the hits that Cannex recorded in the entire first year of its survey in 2011.
The Cannex results track with reports that sales of income annuities have been on an eye-popping upswing in recent times.
For example, LIMRA reported that sales of fixed immediate annuities grew by 8 percent in 2013 (to $8.3 billion) compared with 2012, and that DIA sales grew by 113 percent to $2.2 billion year over year. In fourth quarter 2013 alone, income annuity sales jumped by 23.3 percent to $3.5 billion from in third quarter, according to Beacon Research.
A few qualifiers
The Cannex results don’t mean that all the annuities researched on the Cannex database wound up being sold. Agents and advisors use the service in developing income annuity offers for customers, but not for recording sales actually made from those offers.
Still, the hit count may be viewed as an indicator of income annuity sales activity industrywide, because the report only shows hits that potentially could result in a sale. It screens out hits from other users such as researchers and people running demos.
Another qualifier to keep in mind is that the 103 percent jump in hits includes an increase in the number of times advisors use the service when researching options for just one client, Gary Baker, president of Cannex USA, said in an interview. That especially is the case among advisors who represent two large income annuity carriers that make the service available to their advisors, he said.
“On average, advisors at some firms go into the system three times per customer, just during the initial planning stages with a client,” Baker said. “Many advisors also make additional hits later on to get more detailed calculations and illustrations for a particular product” when a customer is ready to buy.
Even with those qualifiers in mind, he said, the data show greater use of income annuity information gathering, he said. “The advisors appear to be using more information throughout the planning process with a client.”
The data show some definite trends in what the annuity professionals and clients are looking for, too. Here are a few highlights (with numbers rounded).
DIA activity. Annuity professionals are running a lot more surveys on DIA products than previously. In first quarter 2014, for example, nearly 22 percent of the surveys were run on products with an income start date of over one year (this is the Cannex definition of a DIA; the firm treats products that start income within the first year as SPIAs). By comparison, only 9 percent of the surveys from first quarter 2013 were DIAs, and only 4 percent were DIAs in first quarter 2012.
This suggests that last year’s substantial growth in DIA sales may be continuing this year, assuming that sales do result from offers made.
It also correlates with the increasing interest that retirement plan sponsors are showing in DIA products, according to Baker. The number of plan sponsor calls to Cannex about DIAs has increased in the past few months, he pointed out. “They want to know more about the products, because they are thinking of either making a DIA part of their defined contribution retirement plan or offering a DIA as a rollover option for employees when they leave the plan.”
Average age. The hits show that the average age range of potential customers is skewing younger. In the first quarters of 2014, 2013 and 2012, the top age range for the potential buyer in all three years was 60-65 (26 percent, 24 percent and 23 percent, respectively). But the next two age ranges (65-70 and 70+) took second and third place in the previous two years, but not in 2014. In the new quarter’s ranking, the age 70+ category fell out of third place and was replaced by the much younger age 55-60 age group, which now represents 14 percent of hits.
Company ratings. The interest in company rating information is on the rise. In first quarter 2014, nearly 68 percent of the surveys requested company rating information — up from nearly 57 percent in first quarter 2013 and 46 percent in first quarter 2012.
Life-only. Searches on life-only income plans seem to be dropping — to 20 percent of the total in first quarter 2014, as compared with 24 percent in 2013 and 25 percent in 2012. The actual number of hits for life-only products is up, however — to nearly 47,000 this year from more than 28,000 in 2013 and nearly 31,000 in 2012.
Premium or income. More than 80 percent of the surveys continue to come in with the amount of premium specified. That is the case all three quarters compared here. Most likely, the inquiries are looking to identify the amount of income the consumer could get from the indicated amount of money.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at firstname.lastname@example.org.
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